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Review: Third World debt is a burden to us all

By OMAR SATTAUR

The Debt Boomerang: How Third World Debut Harms Us All by Susan George,
Pluto Press with the Transnational Institute, pp 202, £25 hbk/ £7.95
pbk

Perhaps it was simply knee-jerk guilt but it always seemed wrong, somehow,
to blame South America for its deforestation and then dismiss it as South
America’s problem. As it turned out, moral considerations became less important
as we in the North were made to realise that our own interests were at stake.
Destroying rainforests increases greenhouse gases, which do not observe
geographical boundaries. The warming of the Earth and the consequent climatic
changes affect us all. Susan George’s book explores the hidden links between
Third World peasants and First World taxpayers.

George is careful, throughout her book, to avoid making simplistic cause-and-effect
relationships between Third World debt and its ‘boomerang’ impact on creditor
nations. Rather, she and her co researchers ‘stress feedbacks more than
linear connections and tend to see debt and its multiple consequences as
mutually reinforcing’.

The book shows how the ‘debt boomerang’ on its return trip contributes
to disturbing global climate and reducing biodiversity, flooding Northern
markets with cocaine, extorting money from you and me to subsidise commercial
banks, robbing Northern industry and agriculture of hundreds of thousands
of jobs, encouraging immigration to the North and contributing to global
instability.

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From the onset of the debt crisis in 1982, until 1990, debtor countries
paid creditors in the North $6500 million per month in interest alone.
Yet in 1991 those countries were 61 per cent more indebted than they were
in 1982. The crisis has been debilitating to the poorest people in debtor
countries and this book attempts to show how their strategies for coping
directly or indirectly affect us in the North.

Heavy borrowing in the 1970s financed huge, ecologically damaging projects
in the South such as large dams and nuclear power plants. Debtor countries
found themselves cashing in their environmental resources to foot the repayment
bills. Policies imposed by the International Monetary Fund, whose loans
most nations seek as a last resort, are designed to accumulate foreign exchange
with which to repay debt. Only when repayments are substantially met is
the country allowed to pursue other goals. Debtors attempt to fulfil their
obligations to the IMF by exporting natural resources such as minerals,
timber, meat, fish, tropical crops and so on. Research presented in the
book shows clear correlations between the degree of indebtedness and deforestation.

Peru’s military leaders amassed enormous debts during the 1960s and
1970s such that, by 1973, debt servicing accounted for more than 20 per
cent of the country’s export earnings. In 1978 Peru had no choice but to
beg from the IMF, yet its debt continued to increase through the early 1980s.
Alan Garcia, who won the presidency in 1985, inherited a debt burden of
US $16 billion. He proposed to limit debt service payments to 10 per cent
of export earnings and refused to pay the IMF the arrears it asked for.
Peru became ineligible for further loans from IMF, World Bank and commercial
banks. A miners’ strike in 1988, a private sector starved of credit, and
inflation amounting to 2772 per cent by 1989, led to massive emigration,
a strategy that many citizens of debt-ridden Third World countries have
reluctantly adopted and which the book deals with in a separate chapter.
Two-thirds of the population were unemployed or under employed and, as in
Bolivia, the cocaine industry provided work for the desperate.

The book reveals how commercial banks that ostensibly lost money on
bad loans to Third World governments in reality lost very little because,
since 1982, Northern taxpayers have contributed between $44 and $50 billion
in tax relief on bank provisions and ‘losses’. Disguised subsidies from
the public sector to private banks amounted to some $33 billion.

The stringent policies ‘enforced’ by the IMF have left Third World countries
too poor to import Northern goods. In September 1986, the US Congress Joint
Economic Committee stated that ‘by sacrificing their sales and jobs so that
debtor nations can fully meet all interest pavements, US exporters and
workers have been subsidising the bad lending policies of US and other money
centre banks. US workers and exporters are also bailing out European and
Japanese banks’.

The final chapter on conflict and war presents an interesting analysis
of the origins of the Gulf War and a convincing account of how debt and
debt forgiveness affected Iraqi and Egyptian moves during the conflict.
George ends with some observations that are often forgotten: Third World
debt has been largely or entirely repaid; those who borrowed were rarely
elected by their peoples (who now suffer the terrible consequences); those
who loaned were irresponsible or intent on making debtors subservient to
their interests and, finally, there are no checks on international funding
agencies. If the World Bank or IMF get it wrong, millions suffer but the
institutions’ policies are beyond political accountability.